"Monthly Average of 9.1 Billion Dollars Surpasses Forecast" Record Current Account Surplus, Remaining Challenges [BOK Focus]

This year, South Korea is likely to achieve its largest-ever current account surplus, and the Bank of Korea has signaled that it will revise its forecasts for this year and next year upward in December. If the average monthly current account surplus in the fourth quarter (October to December) exceeds $9.1 billion, it will surpass the Bank of Korea's August projection of $110 billion. This target appears easily attainable, given the stronger-than-expected expansion phase (supercycle) in the global semiconductor market. However, there are concerns that if the semiconductor market shifts into a downturn after next year, the impact on the overall economy could be more significant than in the past, underscoring the need for preparation.

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According to the Bank of Korea's Economic Statistics System (ECOS) on November 7, South Korea’s cumulative current account surplus from January through September this year reached $82.77 billion. This is a 23.1% increase compared to $67.23 billion during the same period last year, marking the highest figure ever for the first nine months of a year. The semiconductor sector entered a supercycle, resulting in a boom in exports, while the automobile industry, which previously faced concerns about U.S. tariffs, managed to diversify exports to Europe and other regions, performing better than expected. Semiconductor exports, driven by increased investment demand for artificial intelligence (AI), hit an all-time high in the third quarter, leading the overall growth in South Korean exports. Semiconductors contributed 5.6 percentage points to the overall export growth rate of 6.5%, accounting for the majority of the increase.

If the current account surplus for the remaining fourth quarter reaches at least $27.23 billion, it will surpass the Bank of Korea’s August forecast of an annual surplus of $110 billion for this year. This would require an average monthly surplus of at least $9.08 billion in the fourth quarter. To exceed the previous record set in 2015 ($105.12 billion), an additional surplus of $22.35 billion is needed. This can be achieved if the average monthly surplus for the remaining fourth quarter is at least $7.45 billion.

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Accordingly, the Bank of Korea is expected to raise its forecasts for the current account surplus for both this year and next year in its revised economic outlook to be released on November 27. In last month's "Economic Situation Assessment," the Bank of Korea projected that the current account surplus for this year and next year would exceed the previous forecasts of $110 billion for 2025 and $85 billion for 2026. Despite recent slowdowns in steel and automobile exports to the United States, the robust semiconductor market is expected to drive a large goods surplus, which is the largest component of the current account. Additionally, the "perennial deficit" in the services account is expected to narrow, especially in the travel sector, as the number of foreign tourists increases significantly. The increase in the primary income surplus, resulting from accumulated net external assets, is also expected to contribute. South Korea’s current account structure is such that the goods surplus drives the overall surplus, while the primary income surplus helps offset the services deficit.

The outlook for the fourth quarter is positive. However, the current account surplus for October is expected to decrease somewhat compared to September. This is due to a reduction in the number of business days during the Chuseok holiday in October, which led to a trade surplus of $6.06 billion based on customs clearance, down from September. Nevertheless, if the strong performance in semiconductor exports, stable oil prices, and a continued primary income surplus persist as expected in November and December, the overall trend is expected to recover.For next year as well, the semiconductor supercycle is expected to outperform previous forecasts, with the current account surplus projected to exceed $85 billion.

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However, the expansion of U.S. tariff impacts next year remains a variable. Attention should also be paid to whether the currently suspended U.S.-China tariff negotiations will reignite as a source of conflict. The Bank of Korea has noted that the impact of U.S. tariffs is felt significantly through trade, financial, and uncertainty channels. In particular, the impact on growth through the trade channel is expected to be greater next year. This is because the export costs to the United States, which exporters have been absorbing this year, are likely to be gradually passed on to consumer prices, and as U.S. inflation rises, total demand may decrease, leading to a potential decline in exports to the United States. By product category, the impact is expected to be greatest on metals and machinery, which are subject to high tariff rates, and on automobiles, which have a high proportion of exports to the United States.

There are also calls to prepare for a potential downturn in the semiconductor market, given its high export dependence. The Bank of Korea analyzed that the share of semiconductors in South Korea’s exports increased to 23% in the January-September period this year. This figure rose from around 10% during 2002-2010 to 19% during 2021-2024, and has increased again this year. Semiconductor exports have so farhelped buffer the negative impact of U.S. tariff shocks and contributed to expanding the current account surplus. However, as dependence has increased in the process,there are concerns that if the semiconductor market enters a downturn, the impact on the overall economy could be greater than before. The Bank of Koreaassessed that while the supercycle is likely to continue for the time being, caution is needed regarding a slowdown in global AI investment growth, the dissipation of preemptive demand effects, and the possibility of tariffs being imposed on semiconductor products.

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